The Federal Investment Tax Credit (ITC) remains one of the strongest financial incentives for commercial solar, but the rules have changed. Under the One Big Beautiful Bill Act (OBBA) passed in 2025, businesses can still deduct 30% of eligible project costs if they begin construction by July 4, 2026, and the system is placed in service by December 31, 2027. After those deadlines, new commercial projects will not qualify for the 30% credit.
(Source: IRS Notice 2025-42)
Why It Matters for Businesses
The Federal Investment Tax Credit provides substantial upfront relief, cutting nearly a third of project costs from federal tax liability. On a $500,000 installation, that equals $150,000 in immediate tax benefits. When paired with accelerated depreciation under MACRS, businesses often recover more than half of their investment within the first few years.
The OBBA also reinstated 100% bonus depreciation for qualified energy property, allowing commercial taxpayers to deduct the full cost of eligible systems in the first year.
Recent updates have tightened how projects qualify. The IRS issued Notice 2025-42 in August 2025, which revises the “beginning of construction” rules. It removes the 5% safe harbor for projects larger than 1.5 MW and emphasizes the Physical Work Test, requiring documented on-site or off-site activity to demonstrate project start.
The takeaway: act sooner, document carefully, and avoid relying on weaker compliance strategies.
Timing is Critical
The old phasedown through 2032 is no longer applicable for commercial projects. The new law introduces a hard stop; projects must begin construction by July 4, 2026, and place the system in service by December 31, 2027. There are no step-down years past 2027 for new ITC eligibility.
(Source: IRS Notice 2025-42)
Because commercial systems often take 12–18 months (or longer) from design to commissioning, this window is tight. Companies synchronizing budgeting, permitting, and construction timelines now are better positioned to meet both deadlines.
Foreign Entity of Concern (FEOC) Requirements
Beginning January 1, 2026, new rules under IRS Notice 2025-42 restrict the use of materials or components sourced from Foreign Entities of Concern (FEOCs). These rules are part of ongoing efforts to strengthen domestic supply chains and protect project eligibility for federal incentives.
(Source: IRS Notice 2025-42)
Energy Storage Still Qualifies
Energy storage remains eligible for the ITC under Section 48E of the Clean Electricity Investment Credit, available for qualified facilities and storage technologies placed in service after December 31, 2024.
(Source: IRS Clean Electricity Investment Credit)
For commercial systems, energy storage is most often applied for demand management and energy arbitrage, allowing businesses to reduce peak demand costs and optimize energy use.
Domestic Content Bonus Credit
The IRS First Updated Elective Safe Harbor (Notice 2025-08) also clarified the Domestic Content Bonus Credit, providing an additional 10% credit for projects meeting domestic manufacturing thresholds. This applies to systems that use U.S.-made components such as modules, racking, or inverters, further supporting domestic clean energy growth.
The North Carolina Advantage
Federal incentives stack with state-level benefits. In North Carolina, businesses installing solar can qualify for an 80% property tax exclusion on the appraised value of eligible solar equipment.
That said, legislation such as House Bill 729 has been proposed to repeal this exclusion. Business leaders should factor this into long-term planning.
A Strategic Business Decision
Commercial solar is not a novelty; it is a financial lever. The ITC lowers the upfront capital burden, accelerates return on investment, and boosts cash flow. When combined with depreciation benefits and state-level tax treatment, solar becomes one of the most powerful tools to reduce operating costs and hedge against utility escalation.
Advisory Note
With the ITC now bound by firm federal deadlines and stricter documentation standards, waiting is risky. Developers must document substantial on-site work before July 4, 2026, and plan to commission the system by December 31, 2027. Miss either milestone, and eligibility is lost entirely. For North Carolina businesses, the time to move is now.
